Investment Tax Credit (ITC) / Section 25D
A federal clean energy tax incentive that allows taxpayers to deduct 30% of qualified residential solar and battery storage costs from their federal income tax liability.
The Investment Tax Credit (ITC), codified in the Internal Revenue Code as Section 25D for residential property and Section 48E for commercial property, provides a direct dollar-for-dollar reduction in federal income tax liability equal to 30% of total installed renewable energy system costs.
For energy storage technology, the system must have a minimum manufacturer-rated capacity of 3 kilowatt-hours (kWh). Standalone batteries qualify without requiring solar generation.
The credit is non-refundable but includes an indefinite carryforward provision allowing unused portions to offset tax liabilities in subsequent years.
Why it matters
The 30% federal credit reduces the effective purchase price of a typical $14,000 home battery by $4,200, drastically accelerating the financial payback period.
Example
A homeowner installing a $16,000 battery backup system deducts $4,800 directly from their annual federal taxes on IRS Form 5695 Line 5b.